Warren Buffett says if you invested $10K in
index funds in 1942, you'd now have $51 million,
and that you could still replicate this today.
And many people argue that index funds are the
only way to make money in the stock market,
that everything else is either luck or manipulation.
But is that really true?
It's some kind of lie to get the
average investor to prop up the economy.
Right now, the markets are bleeding.
So I wanted to see if index funds
are really as powerful as some economists say.
Because if index funds mirror the market's performance,
then choosing a basket means choosing an index
or a sector within a bleeding economy.
Does that make sense?
We're going to cover a real index fund strategy
and my top five list.
It's about knowing when to buy and when to sell.
And one strategy made to battle this problem is called
Rothschild, he allegedly said,
buy when there's blood in the streets,
which is a gruesome way of saying,
most investors' emotions just betray them.
Right now, the markets are dangerous.
Nobody knows what's going to
happen next, and that's scary.
People are just giving up on investing right now.
The S&P 500 is
dropping in a pattern that looks similar to
the dot com bubble, and it's happening three times faster.
So does the Contrarian strategy actually work?
Again, Buffett thinks it does.
You've probably heard the quote, be fearful when others
are greedy, and be greedy when others are fearful.
Buffett can back that up.
Between '73 and '74, the stock market
had one of the greatest crashes ever.
There was a war in the Middle East,
a recession, and double digit inflation.
I know it sounds pretty familiar,
but it was literally an apocalypse where the market lost
45% in less than two years.
And in all this, good old Warren saw an
opportunity and snatched a stake in The Washington Post.
He kept that for a few years before
selling it for over 100 times the price.
Because this strategy is not
about buying what's on sale.
It's about digging and figuring out which companies or
sectors have prices that just don't represent their actual
value, also known as their intrinsic value.
And that's the second problem when you're investing:
Choosing what to actually buy.
Because you can choose from thousands of companies from all
over the world, and hand picking them is riskier than
chasing down Vecna in the Upside down.
That's when index funds come into play.
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Now, when some people hear index funds,
they think of them like a lousy marriage.
Long term commitment, low returns, and
less than ideal amount of action.
But the truth is, more action isn't always better.
These are powerful.
An index fund is essentially a basket.
It's a portfolio that tracks the performance
of a specific group of investments.
They follow the market instead of
trying to beat the market.
As Jack Bogle said,
Now, let me give you my top five haystacks
during the recession and then let's really analyze the
pros and cons of investing in these funds.
When looking at an index fund, there are a
few elements to take a major gander at.
This gives you the scope of the investment.
For example, it could be the S&P 500,
emerging economies, growth companies, or obesity.
Seriously.
The second element is the fees.
That's a percentage of your investment that goes
into the manager's pockets and eventually strippers pockets,
which could be a reason why strippers can
predict a recession pretty well.
But believe it or not,
The third element to look at is the minimum investment.
Now, many funds have no restrictions and
you can start with literally pennies.
That's when they sell fractional shares.
Other funds have minimum investments of
a few thousand dollars or more.
And now number five, my fifth index
fund pick is about renewable energies.
Right now we're on track
to abandon fossil fuels forever.
Both Europe and the US are banning the sale
of petrol vehicles by 2035, and this is a
trend we'll see in other industries as well.
But there's a problem.
Wind power
Solar
Hydrogen
Electric
That's why I'd focus on a fund that covers a
such as the iShares Global Clean Energy ETF.
It has an expense ratio of 0.42% and it
covers an index of global equities across many renewable sources.
Another option, it's a good one, but has
way too many words in its name.
The First Trust Nasdaq Clean Edge Green Energy Fund.
Now number four, Healthcare.
Not to be confused with the Obesity ETF.
This industry is changing for many reasons, and for
every change comes a chance to make a buck.
Average lifespans keep increasing, and
that's not going to stop.
The pandemic made healthcare even more front of mind,
and the space dominated the IPO scene last year
raising $17 billion in equity.
It's not only pharmaceuticals and equipment,
but biotechnology, medical supplies, and insurance.
With the world population reaching 8 billion,
health is kind of like betting both on black
and red at the same time.
To invest in this, an option is
the Health Care Select Sector SPDR fund.
It includes companies from the S&P 500,
like Johnson & Johnson, Pfizer and United Health.
And it has a nice and low expense ratio of 0.1%.
Number three, Semiconductors.
You know those little things that everyone talks about and
no one really knows what they are.
But we're in the middle of a tech revolution.
Essentially every company is becoming a tech company.
And the link between electric vehicles,
5G technology,
AI,
rockets,
robot girlfriends,
and new computers
is semiconductors.
Chipmakers supplied the most advanced companies in the world.
And the recent shortage has shown governments that we
just need more and more of these chips.
So a potential fund is the VanEck semiconductor ETF.
Chips are made by just a few companies
worldwide, and this fund tracks 25 of them.
Expense ratio is 0.35%.
But overall, this is a slightly riskier investment.
That's because of the chip shortage and the
political tension between China and the US.
However, McKinsey sees the sector as
a trillion dollar one by 2030.
On to the top two, Large caps.
When you invest here, you're fishing for
the biggest whales, like literally Moby-Dick.
You've got Amazon, Coca-Cola and Microsoft.
That's why it's generally a solid long term choice.
However, there's a catch.
Recently, large cap tech got hit
harder than Amber Heard in court.
So I have two options for you here.
One is the Vanguard Value ETF.
It's focused on stocks that trade
below intrinsic value, and it's pretty
diversified across tech, healthcare and energy.
And the other one is the explosive Vanguard Growth ETF.
It's riskier with 50% tech stocks and just
loves companies with a top notch track record.
A third bonus option here is
the Fidelity Zero Large cap.
It's big, diversified, and has zero fees.
And now my number one.
It's a classic, the S&P 500.
It's basically the American economy and that's
why it's pretty hard to beat.
You would go for the Vanguard S&P
or the Schwab one.
Both of them are solid and have low fees.
By the way, you'll notice that
I didn't include any real estate funds.
That's because the housing market is uncertain right now
and prices are at all-time highs.
And I covered that in a separate video
that will be linked in the description.
Now, the main question,
Again, Jack Bogle, the legendary founder
of the Vanguard group.
He argues that everybody dreams of picking the right stock,
like an Apple or a Google in the beginning
make outstanding returns, get rich and move to Cabo
or maybe here in Puerto Rico.
And he's right.
But he claims that you
shouldn't rely on individual stocks.
But what you can do is follow
an index, own the whole stock market.
Again, Warren Buffett says if you invested $10K in the
S&P 500 in 1942, you would now have $51 million.
In other words, we're going back to the beginning.
Index funds solve the two main trading problems,
The what and The when.
Yes and also no.
There are some cons to keep in mind.
One is that
I get what Bogle means when he says,
don't look for the needle.
But if you have a decent knowledge of business, you
can read about the company, the CEO, the balance sheets,
and you have time to do all this,
you can come up with a solid valuation on a company.
But you can't really do that with index funds.
But there's something deeper here as well.
There's a correlation between the GDP of country
and its stock market.
With broad index funds, what you're really
doing is betting on a country's economy.
So it's true what Buffett says, that if you
invested in 1942, you'd be mega rich by now.
But what happened between 1942 and today
is a unique moment in history.
It's the era where the US became a global
superpower, kind of like investing in Italy right before
the Renaissance or in France right before Napoleon,
if Napoleon lasted a little bit longer.
So the historical circumstances were extremely special.
Charlie Munger hammered this point home when he said
that if you invested in the Japanese economy in
the past 30 years,
you would have lost money.
The Nikkei index just got back to where
it was before the crash in 1990.
So maybe the US economy will skyrocket in
the next decade, but that's still a broad assumption,
and that's why
All things considered, my bottom line is that index funds
are a great idea, not financial advice, of course.
Maybe they're not your only investment, but they can
be the backbone of your portfolio, a sort of
safety net slowly growing in the background.
And if you're looking for even more investing
strategies under a microscope, you need to check
out our exclusive membership platform, Finova.
There you'll get access to everything I'm personally investing in,
participate in live coaching calls every single day,
get free courses, and be part of a community of
people working to get a little bit better every single day.
That will be linked in the description below.
I'd like to thank you so much for watching.
And I hope you have a profitable day!